Preferential trade agreements and the structure of international trade

In this paper we examine the impact of membership in preferential trade agreements (PTAs) on trade between PTA members. Rather than considering the impact of PTA membership on the volume of trade we consider the impact of membership on the structure of trade. For a large sample of countries over the period 1962–2000 we find that membership in a PTA is associated with an increase in the extent of intra-industry trade. Our results indicate that this is especially the case for PTAs formed between richer countries, with the effects of PTAs between poorer countries found to be smaller.     

Who captures the price rent? The impact of European Union trade preferences on export prices

Preferential trade agreements (PTAs) aim at increasing trade flows via the incentives created by preference margins; this is the difference between the preferential tariff and the tariff of the main competitors. However, an additional impact that is often omitted in PTAs evaluations is the possibility that the wedge between preferential and most favoured nation (MFN) tariffs may induce a preference rent that translates into larger prices for preferential exporters. This paper analyses empirically whether preferential exporters capture this preference rent using a unique dataset of imports in the European Union at a highly disaggregated level linked to information on the preferential regime used and the tariff applied. Our main findings suggest that on average an exporter obtains a larger price margin under a preferential regime than under MFN. However, this preference rent is only partially appropriated by exporters with a pass-through coefficient from preference to price margins that oscillates between 0.17 and 0.8, depending on the size of the margin and the type of product.     

Assessing the trade impacts of the ASEAN + 6 FTA for Lao PDR

Using an unbalanced panel dataset of bilateral exports from 1992 to 2009, we assess the potential trade impacts of the expansion of the Association of Southeast Asian Nations (ASEAN) to ASEAN + 3 and ASEAN + 6 on the Lao People's Democratic Republic (Lao PDR). It is found that bilateral exports are positively related to overall bilateral country size and similarity in country size but inversely related to the factor endowment differences, transportation costs, and import tariffs. Simulation results show that the formation of preferential trade agreements (PTAs) between ASEAN and the Plus‐6 economies (the People's Republic of China, Japan, and the Republic of Korea in East Asia; and the other three economies of Australia, India, and New Zealand) could increase bilateral trade between the Lao PDR and ASEAN + 6 by US$1 billion, and ASEAN + 3 by US$981 million. Nonetheless, the trade balance of the Lao PDR is likely to worsen in both the ASEAN + 3 and ASEAN + 6 PTAs because they stimulate more imports than exports.     

Explaining rising regionalism and failing multilateralism: consensus decision-making and expanding WTO membership

The beleaguered progress of the Doha Development Agenda of the World Trade Organisation (WTO) presents something of a puzzle for economic theory: if multilateralism is an effective forum for liberalisation (as it has been in the past), then why have the current round of talks faltered amid the proliferation of preferential trade agreements (PTAs)? This paper builds a ‘hub and spoke’ version of the Maggi (Am Econ Rev 89(1):190–213, 1999) model of trade negotiations to shows that the combination of the WTO single-undertaking and consensus decision-making principles with an expanded and more diverse membership can render multilateralism less desirable for hub countries than bilateralism. It is argued that these principles give spoke countries de facto veto power meaning that their threat point during WTO negotiations is a reversion to PTA negotiations between all parties. Accordingly, spoke countries with relatively less to gain from the WTO can use their veto power to extract gains from those that would benefit substantially. If an expanding WTO membership has increased the number of such countries, then the benefits of multilateralism versus regionalism from the perspective of hub counties may have been diminished to such an extent that they are no longer willing to wait for the conclusion of the Doha round before engaging in PTA negotiations.     

Gravity model: An application to trade between regional blocs

The objective of this paper is to evaluate the determinants of bilateral trade flows among 47 countries and, particularly, the effects of preferential agreements between several economic blocs and areas: European Union (EU), North-American Free Trade Area NAFTA), Caribbean Community (CARICOM), Centro-American Common Market (CACM), and other Mediterranean countries (MEDIT). The period under study is from 1980–99. The authors estimate a gravity equation that allows the comparison of the weight of the influence of preferential agreements and also, infers the relevance of other determinants of bilateral trade flows such us geographic proximity, income levels, population, and cultural similarities. The analysis is undertaken for each year of the sample in order to capture the temporal evolution of the impacts on trade of the different variables considered. Using the estimation results as a base, trade potentials resulting from new free trade agreements are calculated.     

INDONESIA'S TEXTILES AND APPAREL: THE CHALLENGES AHEAD

International rules governing textiles and apparel trade are undergoing transformation. The Multi-Fibre Arrangement (MFA) is being phased out, and as of January 2005 textiles and apparel trade will be conducted under World Trade Organization (WTO) rules. For Indonesia, this presents challenges and opportunities. The global trading system is increasingly seeing the introduction of preferential trade agreements (PTAs) that liberalise trade among members but discriminate against nonmembers. Major markets are negotiating new PTAs that divert trade away from low-cost non-member producers such as Indonesia. China's entry into the WTO allows producers there to take advantage of liberalised quotas and the integration of textile and apparel products into the tariff-based trade system as of 2002. With rising domestic production costs, increased local government interventions and poor tax administration, Indonesian producers face a 'double squeeze'. This paper outlines the key challenges confronting the sector and makes recommendations for sustaining exports in coming years.     

Understanding the role of trade agreements in Indonesia’s FDI

In this paper, we develop the hypothesis that trade agreements influence foreign direct investment (FDI). We extend the conventional model of FDI determinants to accommodate the role of trade agreements. Fitting Indonesian data to this model, we discover strong evidence that, while both bilateral and multilateral trade agreements positively influence Indonesia’s FDI, multilateral agreements have a larger effect. We further distinguish FDI by sector and find sector-specific trade agreements play an active role: these agreements positively influence FDI in the primary and service sectors, but not in the manufacturing sector. We also find that trade agreements positively influence FDI through the export and total factor productivity channels, and less so through the economic growth channel.     

Do transport costs justifyregional preferential trading arrangements? no

Do Transport Costs JustifyRegional Preferential Trading Arrangements? No. — This paper reaches two conclusions. First, in evaluating PTAs, no special consideration need be given to transport costs over other types of costs. Unless one focuses on cases in which PTA and global free-trade outcomes are identical, it does not matter whether differences in delivered prices result from transport costs or from differences in technology or factor endowments. Second, gravity models are inherently incapable of giving any guidance on whether a specific grouping is desirable or whether transport costs make regional PTAs desirable. The gravity equation is consistent with virtually any trade model. The welfare implications of PTAs, however, depend crucially on the specific model.     

Why is it so difficult? Trade liberalization under the Doha Agenda

Many explanations have been offered for the current difficultiesof the World Trade Organization (WTO). In fact, the system appearsto have managed many of these challenges reasonably well, includingthe increase in the number of members, its ‘mediaeval’decision-making procedures, the changing geopolitical environment,the rapid growth of preferential trade arrangements (PTAs),the complexity of its agreements, and concerns about erosionof unilateral preferences. By contrast, the near-exhaustionof the traditional fuel of industrial-country non-agriculturaltariffs, the increasing importance of non-trade concerns, andincomplete adjustment to a new, multi-polar negotiating systemappear to be important factors requiring further examination.     

Processing trade,exchange rates and China's bilateral trade balances

This paper analyzes the role of processing trade in China's bilateral trade balances and the impact of the yuan's appreciation on China's processing trade. The analysis is based on panel data covering bilateral processing trade between China and its partners from 1993 to 2008. The empirical results show that: (1) processing trade accounted for 100% of China's annual trade surplus during the period; (2) China's processing trade showed a significant regional bias—77% of processing imports originated from East Asia while only 29% of processing exports was destined to the region in 2008; and (3) a real appreciation of the yuan would negatively affect both processing imports and exports—specifically, a 10% real appreciation of the yuan would reduce not only China's processing exports by 9.1% but also its processing imports by 5.0%. Based on these empirical findings we conclude that the combined effect of the yuan's appreciation on the balance of processing trade and thus China's overall trade balance will be limited.     

Preferential Trade Agreements and the Margins of Imports

This paper considers the importance of Preferential Trade Agreements (PTAs) in enhancing trade for a large sample of countries within the period 1962?C2000. The paper builds upon the existing literature by examining whether any significant effects of PTAs occur through a change in the variety of imports (i.e. the extensive margin) or through a change in the volume of existing products (the intensive margin). Our results indicate that imports respond positively to the formation of a PTA between countries, and that much of this increase in imports occurs along the extensive margin.     

India's trade with the socialist countries

India's trade with the socialist countries increased most rapidly after 1960. This rapid growth occured in a framework of bilateral trade agreements, the distinct feature of which was that payments for all transactions were made in rupees. The USSR was by far the most important trading partner. Bilateral rupee trade provided India with imports that were essential for its development programme and was also responsible for a little more than 40 per cent of the growth in India's total exports between 1960/1 and 1972/3. In view of the fact that a large proportion of it constituted a net increase in exports and was probably at better terms of trade, there is no doubt that India derived substantial benefits from its trade with the socialist countries.     

Have Asian trade agreements reduced trade costs?

Regionalization of trade in East Asia increased in the 1990s, and has been accompanied by a growing number of trade agreements. The wave of trade agreements is in part a response to the need to facilitate trade in order to make regional value chains more profitable. This paper draws on a rich Australian database for the period 1990–2007, which allows us to control for distance and commodity characteristics and to identify cross-country variation in trade costs. The results, indicating the extent to which East Asian countries’ trade costs have fallen over the regionalization period relative to changes in other regions’ trade costs, provide evidence of the existence of effective policy steps to facilitate trade and also that these steps have multilateral as well as bilateral or regional benefits.     

The role of direct flights in trade costs

Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the US, are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.     

窥探美国外贸政策的方向标——TPA授权析解

TPA是美国外贸法中一种独特的授权模式。该模式保障美国总统在贸易谈判中的可信度,确保国会在谈判前、中、后的核心地位;促使美国在历次重大贸易协定谈判中占据有利位置,维护了"府会"良好合作关系。本文旨在通过探讨TPA的法律机理与历史演进,分析其价值,管窥其未来发展趋向。     

Revisiting the ‘Cobden-Chevalier network’ trade and welfare effects

This study revisits the trade and welfare effects of 19th century bilateralism exploiting the latest developments in structural gravity models, including the consideration of domestic trade. Using bilateral trade data between 1855 and 1875, I show that the Cobden-Chevalier network, i.e. a system of bilateral trade agreements including the Most Favored Nation clause, has large, positive and significant effects on members’ trade. These, however, are heterogeneous at the treaty-level. I then calculate its general equilibrium effects on total trade and welfare. They are considerable, while trade diversion effects are negligible. These results reshape the understanding of the Cobden-Chevalier network, helping in further rationalizing the “free trade epidemic” of the 1860s and 1870s.     

Best practices for regional trade agreements

Complicated web of hub-and-spoke type of overlapping free trade agreements (FTAs) can result in high costs for verifying rules of origin (RoO) and trade diversion or suppression effects. This paper attempts to provide best practices for regional trade agreements (RTAs) to enhance global free trade by mitigating these negative effects. By adopting a gravity regression analysis, we quantitatively estimate the trade creation and diversion effects of cumulated RoO (bilateral, diagonal, and full cumulation) for RTAs established under GATT Article XXIV and under the Enabling Clause. We find that (i) RTAs, in general, create trade among members and divert trade from nonmembers, whereby the net trade-enhancing effect is rather weak; (ii) RTAs should be established under the comprehensive GATT Article XXIV, rather than the piecemeal Enabling Clause; and (iii) full cumulation is the most optimal provision in terms of creating the most intra-bloc trade and diverting the least extra-bloc trade. Overall, we strongly suggest that RTAs should employ full cumulation of RoO under GATT Article XXIV.     

Explaining nineteenth‐century bilateralism: economic and political determinants of the Cobden–Chevalier network1

This study investigates the empirical determinants of the treaty network of the 1860s and 1870s. It makes use of three central theories about the determinants of Preferential Trade Agreement (PTA) formation, considering economic fundamentals from neoclassical and ‘new’ trade theory, political‐economy variables, and international interaction due to trade diversion fears (dependence of later PTAs on former). These possible determinants are operationalized using a newly constructed dataset for bilateral cooperation and non‐cooperation among 13 European countries and the US. The results of logistic regression analysis show that the treaty network can be explained by a combination of ‘pure’ welfare‐oriented economic theory with political economy and international interaction models.     

Economic integration, market size and the welfare effects of trade liberalisation

Economic Integration, Market Size and the Welfare Effects of Trade Liberalisation. — This paper examines the welfare effects of regional and global integration in a model where market size matters. Regional integration leads to higher welfare in the countries of a preferential trading arrangement (PTA), but to lower welfare outside. In case the countries also decide to form a customs union (CU), both countries will experience further gains if the creation of the CU means that the average external trade barriers are raised. In turn, the outside country will in this case experience further welfare losses. If it retaliates and creates a trade war, this will lower welfare in all countries. In contrast, global integration mostly benefits both PTA countries and outside countries.     

On the bilateral trade effects of free trade agreements between the EU-15 and the CEEC-4 countries

The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of free trade agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and the Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries, which did not become members.